The Global Green Finance Index (GGFI) ranks the world’s financial centres according to perceptions of the quality and depth of their green finance offerings. This first edition of the index, GGFI 1, was published on 14 March 2018.

The GGFI is based on a survey of green finance professisonals based in financial centres around the world. The survey continuously and will be sampled every six months when the GGFI is updated. Click here to take the survey.

Brussels, 14 March 2018 - The new Global Green Finance Index (GGFI) was launched today by Z/Yen and Finance Watch at an event in Brussels. The GGFI ranks the world’s financial centres according to perceptions of the quality and depth of their green finance offerings.

In this inaugural edition (GGFI 1), financial centres in Western Europe outperformed those in other regions. The full report can be downloaded here.

The report’s findings include:

The leading green financial centres in each region are London, San Francisco, Shanghai and Shenzhen, Johannesburg and Cape Town, Mexico City, and Moscow.

Paris, Frankfurt and New York lead the centres most cited as likely to become more significant over the next two to three years.

Financial centres that have shown leadership in green finance policy are expected to gain in significance, with Paris at the top of this list.

In some countries, smaller centres with a strong green focus such as San Francisco and Hamburg outperformed larger centres such as New York and Frankfurt.

The rankings are liable to change in future editions, as they are based on tightly clustered scores in the range of 322-437 points out of 1,000.

The level of scores suggests that green finance can grow substantially in size and quality.

Supportive policy measures and investor demand are seen as the main drivers of green finance.

Renewable Energy Investment, Green Bonds and Sustainable Infrastructure Finance were rated as areas of high impact on sustainability and of high interest to respondents.

Disinvestment from fossil fuels was rated as high impact on sustainability but low interest to respondents, suggesting room for policy change.

“Ratings and indexes are important instruments to enable effective communication of relative and absolute progress, as well as encouraging a race to the top, and a healthy debate of what constitutes success and how it can best be measured. In this spirit, Finance Watch and Z/Yen have taken us all to the next level in providing us with the first globally applicable index of developments in greening the world's financial centres”.

Professor Michael Mainelli, Executive Chairman of Z/Yen, said:

“The core of the GGFI is a perception survey which observes and promotes change where it matters most – in people’s minds. The more we can get people talking about a sustainable transition, the quicker it will happen. The high level of interest in GGFI 1 is a step in that direction.”

Benoît Lallemand, Secretary General of Finance Watch, said:

“The GGFI aims to contribute to the definition of green finance and identify best practices and areas for improvement. We hope it will promote bold policy initiatives and high-quality financing that can cut through greenwash. It is urgent that sustainable finance becomes mainstream in all financial centres.”

André Hoffman, President of MAVA Fondation pour la Nature, said:

“We are pleased to support the GGFI as part of our programme to contribute to the creation of a more sustainable global economic system. We are particularly excited that smaller and more specialised centres, such as Hamburg and San Francisco, and financial centres with strong policy frameworks around green finance, such as Paris, Luxembourg and the Chinese centres, have performed well in this first index. We hope more centres will follow where they are leading.”

ENDS

For further information or to interview one of the team, please contact:

Brussels, 8 March 2018 - Finance Watch welcomes the publication of the European Commission’s Action Plan Financing Sustainable Growth. The breadth of issues tackled by the Action Plan undoubtedly makes the EU one of the global leaders in advancing a Sustainable Finance agenda. However, it will fail to deliver on its core objective of “reorienting capital flows towards a more sustainable economy” as it falls short of confronting the key drivers of capital allocation in our financial system.

First and foremost, it avoids the fact that the financialization of our economy over the past three decades, by shifting capital from public to private balance sheets while at the same time deregulating the private sector, has taken away any democratic oversight – let alone sovereignty – over the creation and allocation of credit and capital.

Yet, due to the scale of the challenges, only a direct and effective articulation between such societal objectives (in the form of a robust EU plan to implement Sustainable Development Goals) and the creation and allocation of credit and capital in the financial system (starting with guidelines[1]) leaves us a chance of succeeding.

Benoît Lallemand, Secretary General, said:

“The short-termism of the financial system and the growth of speculative activities over the past three decades have contributed significantly to accelerating environmental degradation, increasing inequalities and weakening social protection standards.

“We should have learned by now what happens when you leave all decisions to markets. Society is left to beg the financial sector to help with the financing of crucial objectives such as the Paris Agreement. The servant has become the master. It is high time we stop shying away from reclaiming democratic sovereignty over finance.”

The European Commission’s Communication on its Action Plan reminds us that “we are increasingly faced with the catastrophic and unpredictable consequences of climate change”, alluding to the fact that our economies are fundamentally unsustainable. But it does not address the root cause of our unsustainable system, i.e. a massive market failure: the negative externalities resulting from economic activity are not priced in.

For fossil fuels alone, the IMF estimates that yearly subsidies (mostly negative externalities not priced in) amount to $ 5 trillion.[2] These subsidies are the reason why the financial sector is not investing in the energy transition. Taxonomies and labels cannot compete with a $ 5 trillion subsidy when it comes to influencing investment decisions. Economic regulation is needed to reorient private capital in the right direction.

Nina Lazic, Research and Advocacy Officer, said:

“The Commission Action Plan is an important step forward and should be delivered with a sense of urgency. Indeed it is only the first step in a transformation of the relationship between finance and the economy. What is needed are adequate public policies which regulate the economic framework in which financial returns are created”.

Failing to remove direct and indirect subsidies to unsustainable activities will also make ineffective the proposals for “mainstreaming sustainability into risk management”. Sustainability risks will only have an impact on investment decisions at scale once they become financial risks.

The Action Plan lists a number of important actions based on the recently published High-Level Expert Group (HLEG) recommendations:

a) Reorienting capital flows towards a more sustainable economy

1. ESTABLISHING AN EU CLASSIFICATION SYSTEM FOR SUSTAINABLE ACTIVITIES

Establishing an EU taxonomy for sustainable activities, which will give clarity regarding what a sustainable asset is and constitute the basis for most of the initiatives set out in the Action Plan. The EU taxonomy for sustainability should be aligned with the EU investment strategy for a sustainable growth. Positive criteria should be complemented with negative criteria, which would be important for identifying non-sustainable investments as well. If we are to improve market transparency and foster a demand for sustainable assets, a full picture of the market needs to be provided so that investors can make fully informed decisions.

Introducing measures aimed at fighting greenwashing, such as establishing EU standards for Green Bonds, are important steps. Two external reviews should be mandatory, one upon issuance and the second for impact monitoring, to ensure that the use of the amount received from bond issuance is consistent with the new EU Green Bond standards.

We regret that the European Commission did not follow the HLEG’s recommendation for establishing a Sustainable Infrastructure Europe which would provide strategic advice and expertise and could significantly contribute to supporting the development of sustainable infrastructure projects. In any case, it is important to spur a diversity of financial institutions that finance the transition. Local, long-term lending capacities are missing in certain parts of the EU, they can and should play a significant role in achieving a just and inclusive transition.

The push from individual depositors and savers is an important driver for the financial system and governments to accelerate the shift to sustainability. They will benefit from better information about and promotion of sustainable finance products.

For investment firms and insurers to take into account sustainability preferences of the clients, we need the highest possible standards for performing suitability assessments to be established in both MIFID II and IDD delegated acts.

The introduction of EU rules on the transparency of benchmarks would be an additional important step in fighting green washing, given that in most of the cases the methodologies applied by index providers in the calculation of ESG benchmarks are not fully transparent. Therefore, any measures that help to improve market transparency and give more confidence to investors is expected to incentivize the demand for sustainable investments.

B) Mainstreaming sustainability into risk management

6. BETTER INTEGRATING SUSTAINABILITY IN RATINGS AND MARKET RESEARCH

Financial institutions including banks should disclose their sustainability exposure and policies, including both risks and opportunities. This non-financial reporting information would then be available to all, including credit rating agencies. They could therefore incorporate the reported exposure into their rating assessment if they deem it appropriate (that is, if the climate exposure is affecting the credit risk on the debt issue in question). This climate exposure reporting requirement will increase awareness at company level and also at investor and stakeholder level, hopefully triggering widespread climate risk mitigation action.

Any legal clarification should guarantee that it is the investor’s responsibility to not only consider ESG factors for the purpose of risk adjusted return maximisation, but also to integrate the non-financial preferences of their clients in their investment decisions. The stewardship of investments should be also a fundamental part of the legal duties. Thus, the investors should actively engage with investee companies to make sure that they take into account ESG factors.

The financial system’s instability is a key obstacle to the long term investments that the shift to sustainability requires. Structural reform and an ambitious and binding cap on leverage would reduce bank shareholders’ appetite for speculative risk, directing them towards other operations such as long term lending to the real economy.

The green supporting factor idea puts two legitimate public interest objectives – greener finance and safer banks – in opposition. There are better ways to promote green finance that do not weaken banks. One is to raise risk weights for brown assets, which would strengthen banks and discourage lending for fossil fuel activities. For society, if not for banks, a brown penalising factor is a win-win outcome.

In addition to a brown penalising factor, the Commission could investigate ceilings or quotas on brown credit, carbon taxes, liquidity support and guarantees for green loans, and subsidies to green economy borrowers, among others.

The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) should be endorsed by the EU and made mandatory which is not the case in the proposed Action Plan. Taxonomies and methodologies for reporting should be standardised to allow comparisons and aggregations of reported information. This would give regulators and market supervisors a better view on global market trends, and therefore a better capacity to take corrective action if necessary.

The Commission’s ambition to align the corporate culture of financial institutions with sustainability and broader society’s interests is very welcome. However, on top of the proposed actions, we recommend that European Supervisory Authorities (ESAs) guidance documents are used to introduce key performance indicators assessing the level to which corporate governance of financial institutions is aligned with sustainability.

The High-Level Expert Group (HLEG) on sustainable finance has published its final report* on 31st January 2018. In this note Finance Watch highlights its reaction to, and analysis of the report.

Second, it is public authorities’ responsibility to promote policies aimed at correcting market failures. Only public policies that adequately price negative externalities, in particular Co2 emissions, can make sustainable investments profitable on a large scale and therefore trigger the widespread emergence of sustainable assets, without which the financial system cannot be sustainable. Urging policy makers to enforce the adequate pricing of negative externalities and accompanying policies should have been among the top recommendations of the HLEG to EU policy makers.

Third, Finance Watch stresses that many reforms are still required to address financial instability, a key obstacle to long-term investments, and to promote increased diversity of business and governance models in the banking and financial sectors.

Download the note to read our analysis of the specific recommendations from the group.

Finance Watch welcomes the opportunity to review the European System of Financial Supervision (ESFS). We consider the system of supervision to be a key driver in ensuring the financial stability and good functioning of the EU markets. In order to ensure that the European financial system operates in a way that protects consumers, investors and taxpayers we need strong European supervisory authorities that are appropriate staffed, financed and given strong mandates.

However, we are disappointed that there is a lack of ambition in the Commission proposal. Following the public consultation on the review, Finance Watch believed that the Commission was planning a significant change to the operation of the European Supervisory Authorities (ESAs). Instead, the proposal leaves the fundamental structures of the ESAs unchanged. The lack of ambition in the current proposal means that there is a need to consider a deeper review in the future.

Any such review should also be based on the input of experts who have deeply considered the structure of the ESFS. The current proposal is largely based on responses to a series of public consultations. The lack of expert input leaves the proposal open to undue influence of stakeholders who may have vested interests shaping how the system is constructed. Finance Watch is concerned that this allows the industry to write its own rules. Therefore, we would like to see a revival of the High-Level Expert Group on financial supervision to inform a future review.

This blueprint sets out the features that Finance Watch would like to see from a ESFS that serves the needs of European society.

Benoît Lallemand, Secretary General of Finance Watch, and Professor Michael Mainelli, Executive Chairman of Z/Yen Group, unveiled the first edition of the Global Green Finance Index (GGFI) on 14 March 2018 in Brussels.

Programme

12:00 Registration

12:15 Welcome, Benoît Lallemand, Secretary General of Finance Watch

12:25 Remarks from Sarah Goddard, Secretary General of AMICE (the Association of Mutual Insurers and Insurance Cooperatives in Europe)

12:35 Presentation of GGFI and Q&A, with Professor Michael Mainelli, Executive Chairman of Z/Yen Group

13:15 Lunch in the Orangerie, Hotel Leopold

14:30 Ends

The GGFI will rank the world's financial centres according to the depth and quality of their green finance offerings. Combining a global perception survey with more than 100 individual data series, the GGFI will help to define what makes a financial centre green and highlight best practices for those interesting in promoting green finance.

New report “New pathways: Building blocks for a sustainable finance future for Europe”

Brussels, 25 September 2017- Finance Watch, together with GABV and Mission 2020, today published a white paper on financial sector reforms that could help deliver a sustainable finance transformation in Europe.

The report, launched at an event hosted by the Bruegel think tank in Brussels earlier today with Triados CEO Peter Blom, identifies eleven reforms that would help to build a renewed and sustainable financial system, including realigning finance with society’s needs and helping individual citizens to invest in a sustainable economy.

Benoît Lallemand, Secretary General of Finance Watch, said:

“It has been a pleasure to work with the Global Alliance for Banking on Values, Mission2020 and the other contributors who together produced this report. The recommendations come from both pioneers in the banking sector and civil society representatives, and I invite policymakers and the members of the European Commission’s High Level Expert Group on Sustainable Finance to explore them as part of their essential work on making the financial sector sustainable and putting it at the service of a sustainable economy.”

The recommendations include:

Sustainability assessments for bank assets

Banks to formulate their purpose in public and in line with the SDGs and the mission 2020 agenda

Capital requirements with sustainability weightings

Guarantees, subsidies and technical assistance to stimulate investment in the sustainable economy

Revenue-neutral ‘sustainability levy’ mechanism for financial assets

Toolkit to increase the diversity of business models within the financial sector

Create a European hub for sustainable infrastructure investments

Create a ‘UCISS’ regime for sustainable securities to make it easier for citizens to invest in sustainable assets

Training for finance workers on sustainability issues

Reporting of sustainability metrics for financial institutions

Loyalty shares to encourage longer term outlook in corporate governance

The Global Alliance for Banking on Values (GABV) is an independent, growing network of banks using finance to deliver sustainable economic, social and environmental development. Founded in 2009, members include 43 financial institutions and seven strategic partners operating in countries across Asia, Africa, Australia, Latin America, North America and Europe. Collectively the GABV serves more than 41 million customers, holds up to $127 billion of combined assets under management, and is powered by a network of more than 48,000 co-workers. Learn more at www.gabv.org.

Mission 2020 is a global initiative launched in April 2017 by Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change and architect of the 2015 Paris Agreement. Mission 2020 aims to bring together political, business and civil society leaders to accelerate efforts to “bend the curve on greenhouse gas emissions by 2020”. The initiative has set out six milestones to achieve by 2020 in order to meet the Sustainable Development Goals by 2030 and net zero emissions by 2050, in energy, infrastructure, transport, land use, industry and finance. Learn more at www.mission2020.global.

Set up in 2011, Finance Watch is an independent non-profit association with a mission of making finance serve society. It acts as a public interest counterweight to the powerful financial lobby. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and citizens. Finance Watch has 46 member organizations and 30 individual expert members from 14 different countries in Europe. Learn more at www.finance-watch.org.